Pakistan is the second largest trading partner of Sri Lanka in the SAARC region after India. The substantial growth in bilateral trade is seen in both exports and imports specially after the Free Trade Agreement between the two countries was implemented in 2005, indicating the potentials that exist for expansion and development of trade between the two countries.

Pakistan – Sri Lanka Free Trade Agreement (PSFTA)Oportunities available for the business community:
Pakistan – Sri Lanka Free Trade Agreement came into force in June 2005. This bilateral Free Trade Agreement (FTA) creates opportunities for the business community of the two countries to have easy market access for their products without payment of import duties. Except for some selected product categories, all other products are allowed to enter each others’ market on duty free basis under this FTA, when manufactured in the exporting country.

The lists of product that are
not allowed to enter into each others’ market
on duty free basis (No concession lists) are available
in the website of the Department of Commerce,
Colombo www.doc.gov.lk.
Details of these products can also be obtained
from the Sri Lanka Consulate General in Karachi.

Products subject to Annual Tariff Rate Quota (TRQ):
Under the PSFTA, some categories of products are given market access subject to limited quantities and reduced duty rates (Margin of Preference) in the respective country as agreed by the two governments. Details of these products are as follows:-

Tea: Under the TRQ granted by Pakistan, Sri Lanka will receive duty-free access for a total of 10,000 metric tons of tea for each financial year (July/June). Sri Lanka will be able to enjoy duty free access for her exports of tea in bulk and in value added forms (tea in packets and bags) under this arrangement.

Betel leaves: 1,200 MT of betel leaves per financial year with 35% of Margin of (MOP) on applied MFN rate.
Apparels: Pakistan has offered to Sri Lanka TRQ of 3 Mn. Pieces per financial year (July-June) for 21 product categories of apparel with a preferential duty margin of 35%. It is pertinent to mention that, in order to enjoy this benefit, there is no binding on the part of the apparel manufacturers to source their raw materials from Pakistan. In other words, they would be able to source their input requirements from any country.

The main product categories, which could be exported under this arrangement include men’s and boy’s under pants and briefs, women and girls under pants and brief of cotton and other textile materials, women and girls night dresses and pyjamas, T-shirts, singlet and other vest of cotton, and other textiles materials, men’s & boy’s swimwear of synthetic fabrics and other textile materials, brassieres, gloves etc. However, the maximum quantity that can be exported under any of these categories is limited to 200,000 pieces.

Potatoes 1000 MT per year 100% duty free(2/3 to be exported during June/July and 1/3 during October/November each year).

These products will be allowed to enter duty free basis to Sri Lanka when originated from Pakistan.

Rules of Origin:
The exporters of the two countries need to comply with Rules of Origin in order to qualify for preferential duty benefits. Based on the origin, the Rules of Origin categorize the products exported under the PSFTA into the following two main segments.

Products wholly produced or obtained in the territory of the exporting country such as agricultural, fishery and mineral products.

Products, not wholly produced or obtained in the territory of the exporting country (manufactured products).

All manufactured products falling under the category (b) above should contain a minimum of 35% of Domestic Value Addition of their FOB value in order to qualify for preferential treatments. Further, it is also necessary that all non-originating materials, (materials imported from other countries) used by the exporters change their HS codes at six-digit level against that of the final product as a result of the manufacturing process undertaken in the exporting country.

Cumulative Rules of Origin:
The Cumulative Rules of Origin encourage exporters to source their inputs from the other contracting country. However, the Domestic Value Addition in the territory of the exporting country shall not be less than 25% of the FOB value of the final product, while the aggregate value addition in both contracting parties should be a minimum of 35% of the FOB value. In addition, the respective products should also conform to the Change of HS code requirement (at six digit level) as in the case of the manufactured goods, referred to under category (b) above.

Provision for Change of HS Codes at six-digit level, has made the Rules of Origin of the PSFTA more flexible, compared to some other Free Trade Agreements, which stipulate that Change of HS Code should take place at four digit level.
(It is important to note that all products exported are subject to the conditions of non-qualifying operations under rules of origin)

Opportunities Available For Businessmen Under the Agreement , Specially for Pakistan Businessmen:

Pakistan businessmen are able to manufacture products in Sri Lanka, which are having high demand in the Pakistan market and export to Pakistan availing the duty free benefits/duty concessions granted under the Agreement. This process will enable them to market their products in Pakistan at very competitive prices against the products imported form other countries.

Under the Agreement, when the raw materials are sourced from Pakistan the domestic value addition percentage is at a very lower level. This will enable manufacturers to source raw materials into Sri Lanka from Pakistan on a duty free basis and export manufactured products to Pakistan under duty free/duty concessions offered under the Agreement.

When products are imported from Sri Lanka on duty free basis, Pakistan Businessmen can compete with other competitors of similar products.